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President Trump’s Confused Approach to Trade Is One Giant Contradiction

June 12, 2018 in Economics

By Ryan Bourne

Ryan Bourne

President Trump’s ideas on trade often seem
paradoxical.

At the weekend G-7 summit, he floated both abolition of all tariffs worldwide and banning trade with certain countries entirely
over the course of just 24 hours. His recent announcement of the
removal of exemptions from steel and aluminum tariffs for the European
Union, Canada and Mexico was justified on “national
security” grounds. Yet reminded that these countries are
military allies of the United States, the president retreated to
suggesting the tariffs were retaliation for current EU and Canadian
trade barriers to U.S. products.

Two theories of the president’s approach are consistent
with these interventions. The optimistic case for free traders says
that Trump is threatening tariffs and using the presidential bully
pulpit to try to open up highly protected foreign sectors, and
ushering a new era of global free trade. The pessimistic case says
the president and his close team are protectionists at heart, and
use the veneer of arguments about reciprocity to cover up their
true intentions.

Rather than seeing free
trade as a means of promoting mutually beneficial exchange between
buyers and sellers, the president thinks of trade as a zero-sum
game that sees nations “winning” if they export more than they
import.

Sadly, most available evidence now points toward the latter.
Over the last three decades there has been a slow but steady
liberalization of markets, with tariff rates among advanced
economies falling, in large part due to painstaking multilateral
negotiations and trade deals. According to World Bank data, the weighted mean
applied tariff rate for the U.S. and EU are near identical at 1.6%,
and even lower in Canada at 0.8%. Mexico is higher at 4.4%, but
given this has tumbled from 15.5% just 15 years ago, and many goods
are traded tariff-free with the U.S. due to Nafta, focusing on
these countries seems an odd place to start if your aim is a freer
global trading environment.

That is not to say that there are not egregiously overprotected
markets in the EU and Canada. All countries seem to have some
well-organized vested interests who resist this pull toward open
competition. President Trump is correct that the Canadian dairy
sector uses a “supply management” system incorporating
tariff rates of up to near 300% on dairy products for imports
beyond quotas
. These do raise prices for Canadian consumers and
discourage importation of American produce. The European Union
likewise imposes much higher tariffs on American car imports than
vice versa (10% vs. 2.5%), though the U.S. imposes higher tariffs
than the EU on trucks. The world as a …read more

Source: OP-EDS

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